Organic yogurt firm finds an ally

During Gary Hirshberg's first hour of work Thursday morning, he followed a couple of entirely new procedures at New Hampshire-based Stonyfield Farm, the organic and natural yogurt company he runs.

For starters, Hirshberg began his day by phoning Groupe Danone S.A. in France for an in-depth research report to help him assess a new Stonyfield entry in the yogurt-drink category. Then he called another Danone department to inquire about any used coolers that might be available for chilling the freshly made product.

Just a day earlier, Groupe Danone, which markets the top-selling Dannon brand in the U.S., had been Stonyfield's biggest competitor. But last week, the French grocery giant agreed to become a 40 percent owner of Stonyfield Farm, with an added clause to potentially buy up to 75 percent in 2004.

"In minutes I gained access to research I would otherwise have to assign to someone and wait maybe weeks for the report," said Hirshberg, Stonyfield Farm's president and CEO who has been with the company since its infancy 18 years ago. "As for the cooler, we used to have to hire a broker and tell him not to tell Danone he represented us."

The emergence of Stonyfield Farm has been confounding Danone and other big yogurtmakers for years.

The privately held firm is committed to what is called the "triple bottom line" of profits, social justice and environmental responsibility. Nonetheless, the $85 million firm has averaged compound annual growth of 24 percent in the last decade; the yogurt category overall rose only about 8 percent.

In Chicago, Stonyfield is gaining market share at astonishing rates--68 percent growth in the last year in area supermarkets. Just this past month, it became the third best-selling yogurt in Chicago behind Dannon and General Mills Inc.'s Yoplait, and it's No. 1 among natural yogurts, said Hirshberg.

With a reported purchase price of $50 million for a 40 percent stake, the Danone-Stonyfield Farm deal is tiny compared with the many huge mergers and acquisitions in the food industry. But to some, it reflects how big companies are waking up to the marketing potential of organic foods.

"It was a way for Danone to shore up its yogurt business, but also a welcome opportunity to get into the fastest growing segment of the food industry, which is organic foods," said analyst Scott Van Winkle, of Adams, Harkness & Hill.

"It is still in question whether the core natural foods consumer, the people who have been shopping at natural foods and health foods stores for years, will ever be willing to buy Dannon organic or Wonder Bread organic. These customers associate with organic brands like Stonyfield."

Naturally, some doubt that any socially responsible company can keep to its so-called triple bottom line when major conglomerates become investors.

Exhibit A is the sale of the Vermont-based Ben and Jerry's ice cream brand to Unilever PLC, the Anglo-Dutch food conglomerate. By late 2000, Unilever named a chief executive officer to whom founders Ben Cohen and Jerry Greenfield strongly objected because he didn't share their commitment to social policies.

Hirshberg, a friend and admirer of his fellow New Englanders, said the "partnership" with Danone is different.

For one thing, Cohen and Greenfield turned over the legal rights to naming a CEO. Hirshberg's agreement with Danone stipulates he remains CEO with significant autonomy to manage the business, including full control of the board of directors. The Stonyfield CEO credits Franck Riboud, Danone's chairman and CEO, for accepting the unconventional arrangement during a negotiation process that lasted nearly two years.

"To say there will be no changes is silly," said Hirshberg. "There will always be changes in a company that grows as fast as we do. Only time will tell if we did it the right way."

For his part, Riboud, whose company also markets Evian water and Lu biscuits, seemed to sign on to the idea behind the triple bottom line, saying last week that "Stonyfield isn't a brand, it is an ethic."

Part of Stonyfield's mission is to support organic and family farming and to protect youngsters from pesticides and other toxins.

Frank Lampe, managing partner of Natural Foods Communications, which publishes an industry newsletter and business journal, said the Stonyfield deal could serve as a model for other organic food companies in need of funding.

"The heart of the issue for natural foods companies is they have to be careful about the investors they align with," said Lampe. "So many companies start out with a social-based mission, then have trouble keeping it as other investors come in. Too many companies have lost their soul."